Still resisting installing a smart meter in your home? If so, the National Grid might make you think again – by offering you free electricity. With low temperatures boosting demand for power, and output from wind and solar farms looking a little flaky, the grid needs to cut demand to avoid blackouts. This has prompted it to exercise, for the first time, something called the ‘demand flexibility service’, which offers incentives worth up to £10 or so to customers who are prepared to switch off their appliances for a couple of hours this evening. To take advantage of this offer, you need to have a smart meter and buy your electricity from one of the companies who are signed up to the scheme. Exactly how you are paid depends on which electricity company you use, but Octopus energy, for example, is telling any customers who cut their normal usage by 40 per cent between 4.30 p.m. and 6.30 p.m. that they can have any electricity they do use for free.
It isn’t hard to see how you can game the system. Make sure that, on windy days, you charge your Tesla, put on the dishwasher and bake your chocolate brownies in the afternoon to make it easier for yourself to cut your usage – and so, save money – on days when the ‘demand flexibility service’ is in action.
But what the National Grid is offering today is just the carrot; once we have all been persuaded to install smart meters, out will come the stick.
What the National Grid is offering today is just the carrot
Smart meters enable electricity prices to be varied throughout the day to match supply with demand. Electricity customers have long been able to install an Economy 7 meter which offers them cheaper electricity at night, in return for slightly more expensive electricity during the day. But smart meters have the potential to take variable pricing to a new level, so charges can be changed on an hourly basis. At the moment, the electricity industry is using the facility only to offer discounts. But this isn’t sustainable. With intermittent wind and solar power forming an ever-greater slice of our electricity supply, and with the government committed to eliminating gas from the grid by 2035, the industry will need far more than positive incentives if it is going to match supply and demand. It will have to introduce Uber-style surge pricing, where the cost of electricity can be jacked up to several times its normal level at peak usage times.
To give an idea of just how drastic the pricing structure may have to be, the proportion of power supplied by wind and solar over the past month has swung from more than 50 per cent to less than 2 per cent. It is going to take some incentive structure to persuade customers to adjust their use of electricity to cope with swings in power production of that magnitude. The structure will have to involve handouts – and significant penalties in terms of high per-unit electricity charges.
It is possible to store energy for use when winds are light, and perhaps some customers will be prepared to pay for that. But using the current technology it costs around six times as much to store electricity in large batteries as it costs to generate the power (from a wind farm) in the first place. The price of wind and solar may have fallen sharply over the past decade – but not when you take into account the cost of storing surplus energy to use when supply is tight.
Beware, then, the smart meter in your understairs cupboard. Today, it may be offering you the chance to save money. In future, it will be fleecing you.
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